Construction’s Growing Role in Renewable Energy

California isn’t just a warm place to live, which is often the case even in winter, but it turns out the state is considered a “judicial hellhole.”

The American Tort Reform Foundation issued its annual “Judicial Hellholes” report as 2013 was drawing to a close, and it singled out California’s civil courts as the nation’s top place to experience extreme misery or squalor – as “hellhole” is defined in the Merriam-Webster dictionary.

The annual report also named civil courts in Louisiana, New York City, West Virginia, Southwestern Illinois’ Madison and St. Clair counties, and South Florida as among the nation’s “most unfair.”

In other words, those are places the foundation considers the worst in which to face a lawsuit.

The report ranked six “judicial hellholes,” and it places 10 jurisdictions on a watch list, as well as bad court decisions the group calls “dishonorable mentions.” The report threw in a few bright spots too.

“With a legislature that is seemingly run by and for personal injury lawyers and a wildly permissive judiciary, California remains ignominiously atop the Judicial Hellholes list for a second consecutive year,” the report states. “The once-Golden State continues to be a breeding ground for consumer class actions, disability-access lawsuits and asbestos claims, while also serving as something of a last-stand for a stubborn nuisance of a liability theory.”

“I think California must be a tough place for a corporate defendant who wants to escape justice,” he said. “It’s a little bit like Satan saying heaven is a little too chilly for him.”

Rosenfeld thinks the class action process is currently skewed toward protecting defendants, and that it helps the big corporations elude accountability for the products they make and the services they provide.

“Their principal goal is to escape any kind of legal accountability for any kind of dangerous products they make, the defective drugs they market, the food that is polluted, the chemicals that are increasingly shown to harm people’s bodies,” he said. “These companies want a get out of jail free card and they get mad when they can’t get it.”

To support its dubious ranking on California, the report cited a surge of consumer class action lawsuits targeting the “Big Food” industry.

Roughly a dozen plaintiffs’ law firms alone have filed nearly 75 class action lawsuits over the past few years against “Big Food,” and counting filings from additional firms there were more than 100 consumer class actions filed against food makers in 2012 – five times the number filed four years earlier, according to the report.

Among the examples the report draws on is a class-action suit against Trader Joe’s accusing the Monrovia, Calif.-based specialty grocer of intentionally mislabeling several of its branded packaged foods so they appear healthier than they actually are.

Over the past 15 months companies like Chobani, and WhiteWave, which sells Horizon Organic dairy products, and Silk brand products, have seen lawsuits from plaintiffs’ lawyers claiming the companies use the term “evaporated cane juice” instead of “dried sugar cane syrup” or “sugar” to make consumers believe that there is no sugar in their product, the report notes.

Many of these suits go through the U.S. District Court for the Northern District of California, which the report states has a “reputation for receptivity to such claims.”

The Northern District of California in San Francisco has been called “the food court,” since it hosts more food-marketing and food-labeling lawsuits than any other federal court, according to the report.

Beside the “Big Food” suits, the report credits the state’s plaintiff-friendly consumer laws and large population for its top tier “hellhole” status.

“Rarely has there been a week in 2013 without a report of another class action filed against a food maker,” the report states.The energy sector’s march toward renewable sources is driving business to contractors and their insurance suppliers, who have thus far managed to keep up with the changes and growth.

Power generation from hydro, wind, solar and other renewable energy sources worldwide will exceed that from gas and be twice that from nuclear by 2016, predicts the International Energy Agency (IEA). Despite tough economic conditions worldwide, growth in the renewable energy sector will increase by 40 percent in the next five years.

The construction world is among the beneficiaries.

“There is a lot of changing going on in the construction industry as well as other industries as a result of growth in the renewal energy industry,” says Aaron Kock, underwriting consulting director at CNA.

In Kock’s view the insurance industry has done a good job keeping up with how renewable energy is creating new industries and how it affects existing industries as well.

Even traditional artisan contractors are getting into the action. Kock says that general contractors, roofers, electricians, HVAC contractors, landscapers, pool contractors and other contractor trades touch the renewable energy sector even if the work they perform is not billed as a renewable energy project.

“If someone is renovating an existing building and a big part of that is improving the energy of the HVAC system, or installing some solar panels on a roof, those contractors may not be what you usually think of as green or renewable energy contractors, but today’s jobs are requiring contractors to do those jobs,” he says.

Roofers need to be proficient at either installing solar panels, or even if they are not installing solar panels they need to know how to work on roofs that have solar panels, Kock says. “Today’s roofers need to be able to function a little bit like electricians,” he says.

Every construction trade is becoming more and more involved in renewable energy, according to the underwriter.

Energy Efficiency

Renewable energy construction is no longer found only in new construction either. Energy efficient retrofits are on the rise.

“Commercial office building owners, as they renovate for new tenants, are willing to spend the extra money to achieve some LEED certification or at least make that space energy efficient,” Kock says. Many businesses today are seeking only environmentally responsible buildings to lease. “You are going to be redoing the HVAC system, lighting system, smart features and adjust the energy consumption according. That affects a lot of contractors.”

The latest craze in this segment is something that was done 15 years ago, he says. It’s the concept of a shared savings agreement for energy efficiency:

“So I come into your building as the contractor or essentially as a developer, and I say that I will do these 10 things and you are not going to pay me a dime today. You are going to pay me every month for the next three, five, or seven years – whatever the number is – a percentage of the savings that you receive [by installing energy efficient elements to a building.]”

After the construction work is completed, if the building owner saves $100, then the owner would pay the developer 85 percent of that savings, for example.

“So for the building owner, it’s zero risk,” Kaminski says. “You’re always going to save something because you are getting newer, better, more efficient technology. But you get all this new equipment, more efficient, and it doesn’t cost you anything.”

But what if the savings don’t add-up to what’s promised by the contractor? That’s where a warranty insurance program comes into play.

“We are seeing more and more financial mechanisms, lenders, that are going into the energy efficiency marketplace and making requirements for the insurance,” Kaminski says. This is opening new doors for contractors and developers to sell projects deemed as more energy efficient to building owners.

To help insure the savings an owner will receive as a result of reduced energy costs delivered by the retrofit, Energi developed warranty programs, or contractual liability policies, to backstop performance obligations promised by contractors, designers, engineers or even product manufacturers.

“We have an energy efficiency warranty program, which is to backstop an energy efficiency contractor’s guarantee of energy savings in a retrofit,” he says. “We have the same thing for solar and we also have a product for manufacturers.”

Energi began developing the warranty programs about three years ago, but last year was the banner year, Kaminski says. Today, Energi covers about $80 million to $90 million worth of warranty projects.

“We’ve gotten good traction on providing these contractual liability backstops for not only energy efficiency but also energy production,” Kaminski says.

“It’s the financial institutions looking at the developer, who acts as the project owner, and they say, ‘OK how do you generate revenue to repay the loan if the project doesn’t achieve its [energy] savings? … It comes from properly structuring a guarantee and the insurance behind that guarantee.”

While many of the projects covered by Energi’s warranty programs are still in their infancy, just one to two years old, so far the loss history is nonexistent.

“There is [claims] opportunity being that these are long-term covers, going up to 10 years,” Kaminski says. “But we have had projects mature past their first measurement period and most of them are showing quite well right now.”

CNA’s Kock foresees the trend of traditional contractor trades getting more involved in the renewable energy segment strengthening in 2014. “Contractors are seeing more and more of their work related to renewable energy and anyone who is involved in the construction industry, if they are not seeing that trend currently, they will going forward.”

California groups that have been fighting to turn the state’s litigious tide weren’t shocked by the state’s top ranking.

“I’m not really surprised by the ranking,” said Kim Stone, president of the Civil Justice Association of California.

Stone noted that California often ranks near the bottom in surveys that rank states by business friendly environments, and she puts the blame squarely on the shoulders of lawmakers.

“The legislators over the years have been very friendly to a number of plaintiffs’ lawyers proposals and have created new and sometimes creative ways for folks to sue each other in our state,” Stone said.

She blames suits related to the Americans with Disabilities Act and Proposition 65.

“Both of those are taking off,” she said.

ADA’s federal law enables people who are personally injured in some way because of an ADA violation to sue. In California, you simply have to show an access violation to sue for an ADA violation, Stone noted.

“Because of that you’ve had this cottage industry spring up of lawyers who have made a living off of very minor and technical ADA violations,” Stone said, adding that attorneys often have the goal of getting a quick $10,000 settlement. “That, in my opinion, is a little like legalized extortion.”

Prop. 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, was intended to inform and protect Californians from chemicals known to cause cancer and birth defects. The law requires the governor to annually publish a list of these chemicals.

Businesses that may have those chemicals present must post a warning sign. When the act passed there were some 30 chemicals listed. Now there are nearly 900 on the list.

“And if your business doesn’t have a sign up, they can sue your business and they often sue for $80,000, $100,000,” Stone said, adding that the signs are useless. “They provide little or no valuable information to the consumer.”

The report calls out “dishonorable mentions,” for court decisions it disagrees with. It called out the Oklahoma Supreme Court for nullifying a tort reform law, which the group said cost the state time and money when the legislature had to reconvene and reenact each provision of the law separately. It also gave a bad nod to the Illinois appellate courts for expanding workers’ compensation liability beyond the intended scope and providing excessive compensation.

The report gives props to several state court decisions with which the authors side, including: The Colorado Supreme Court for instructing trial courts to play an active role in reining in overly broad discovery; the Idaho Supreme Court for standing against “vexatious litigants;” the Illinois Supreme Court for going against the filing of asbestos cases with no connection to the state; the Maryland Court of Appeals for retaining a rule that a defendant is not liable when a plaintiff ‘s own actions contributed to his or her injury; and the U.S. Court of Appeals for the Fifth Circuit for upholding Mississippi’s $1 million limit on noneconomic damages in general personal injury cases.